U.K. Welfare Cuts Pushing Children Into Poverty, Hammond Told

(Bloomberg) -- Hundreds of thousands of children in Britain could be tipped into poverty if Chancellor of the Exchequer Philip Hammond presses ahead with planned cuts to welfare spending, according to analysis published Thursday.

A freeze to most working-age benefits will see about 7.5 million low-income households lose more than 500 pounds ($660) a year in real terms by 2022, the Institute for Fiscal Studies said. Some could find themselves 2,500 pounds worse off as a result of benefits being limited to two children, it said.

The warning highlights the pressure on Hammond to loosen austerity as he prepares to deliver his Budget on Nov. 22. The finance minister is facing demands to end the benefits freeze and lift a cap on public-sector pay increases, as well as to find extra money for housing and the state-run health service. A backlash against years of spending cuts cost the Conservative Party its parliamentary majority in June’s general election.

Such demands come against a challenging fiscal backdrop, with a downgrade to future growth expected to wipe out a chunk of the 26 billion-pound buffer Hammond built into his plans to cushion the economy against any fallout from leaving the European Union. 

All U.K. regions will see child poverty increase, with Wales, northeast England, the East Midlands and Northern Ireland forecast to be hardest hit, according to the London-based IFS. 

The Office for Budget Responsibility, the government’s independent fiscal watchdog, could also be forced to lower its forecast for earnings growth after it declared last month it had become much more pessimistic about productivity, the IFS said.

In March, the OBR predicted the median U.K. household income would grow 4 percent in real terms over the next four years. That’s half of the norm before the financial crisis but the forecast may yet prove to be “too optimistic,” said Andrew Hood, an IFS research economist who helped produce the report.

To contact the reporter on this story: Andrew Atkinson in London at a.atkinson@bloomberg.net.

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Eddie Buckle, Thomas Penny

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